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Don't Believe The Debt Ceiling Hype: The Federal Government Can Survive Without An Increase - Forbes
Reaching the debt ceiling does not mean that the government will default on the outstanding government debt. In fact, the U.S. Constitution forbids defaulting on the debt (14th Amendment, Section 4), so the government is not allowed to default even if it wanted to.
In reality, if the debt ceiling is not raised in the next two weeks, the government will actually have to prioritize its expenses and keep its monthly, weekly, and daily spending under the revenue the government collects. In simple terms, the government would have to spend an amount less than or equal to what it earns. Just like ordinary Americans have to do in their everyday lives.
Once the reality of what hitting the debt ceiling means is understood, the important question is: can the government actually live with a balanced budget? How much money could it spend? Could enough spending be cut to live within a balanced budget? The answer is yes, the federal government could live with a balanced budget. Below I will show you precisely how.
The federal government estimates it will collect almost $3 trillion in revenue for the fiscal year that runs from October 1, 2013 until September 30, 2014. Below I demonstrate one possible way the federal government could institute some priorities and spend only the amount it receives in revenue. (All the numbers I use to construct the balanced budget below can be found here.)
To begin with, the interest on the national debt must be paid. I will budget $240 billion for that. The White House is guessing a little lower, but interest rates have been rising, so I will play it safe. Next, social security payments should run about $860 billion. Place that as the second priority and we already have spent $1.1 trillion of the $3 trillion we have.
Holding Medicare spending to about its fiscal year 2013 total and making some small cuts to Medicaid and other health spending would keep health care spending by the government to $860 billion. This does not include additional spending for the Affordable Care Act, but we need to prioritize and I am making it a lower priority than the health spending we have already been incurring. Also, there is no need for extra spending for the Affordable Care Act before January 1 since the coverage does not start until then. So as long as the debt ceiling is raised before then, there is no problem.
Veteran’s benefits will cost another $140 billion if we leave it unchanged. Department of Justice programs and general government functions add another $83 billion if their spending levels are held roughly constant. We can save some money by cutting science funding to $10 billion and international affairs spending to $13 billion which is enough to operate the State Department and embassies, but not pay foreign aid. This takes total spending to $2.2 trillion.
Cutting spending on conservation programs in half and paying only for agricultural research programs (no more farm subsidies) would cost $25 billion. Some moderate cuts to transportation spending bring it to $90 billion. Slicing education spending in half would reduce it to about $40 billion. The total for annual spending is now $2.36 trillion.
Retirement programs for federal employees add $137 billion to our spending. Cutting welfare programs back to basically food security programs (food stamps, WIC, the school lunch program) and housing assistance programs will leave federal welfare spending at $150 billion. Total spending has risen to $2.65 trillion.
That leaves only about $300 billion for defense spending. However, employee contributions to the retirement plan and some miscellaneous offsets that the government does not count as part of the $3 trillion in revenue expected next fiscal year bring in $90 billion per year. That means we can spend about $400 billion on defense and still have a balanced budget. This would reduce military spending back to 2003 levels, before we were fighting wars in the Middle East. Not a small cut, but probably feasible.
Most people will probably complain about one or more of the cuts proposed here. That is to be expected. If you didn’t notice, NASA and the Departments of Commerce and Energy were completely eliminated. Deep cuts were made to some other departments (Education, EPA, Agriculture, and HUD). Welfare spending was reduced. However, the point was not to propose a budget that people loved, but to show that a balanced budget was not completely beyond reason.
After all, the above spending paid all interest on the debt, left social security, veterans benefits, justice and law enforcement agencies, federal employee pensions, food stamps, and general government functions untouched, continued Medicare and Medicaid with some small cuts, and still spent non-trivial sums of money on education, transportation, and defense programs.
In the long run, if people want to restore some of the spending that I hypothetically cut above, we need to reform entitlements because that is where about three-quarters of the spending goes; principally to social security, Medicare, and Medicaid. The point above, however, was not to build a perfect budget or one that is sustainable in the long run, but just to show we could get by for a period of time without raising the debt ceiling.
I think we can all agree that our national politicians are not financially responsible. Giving them a credit card with a higher limit is sure to end with them using that extra credit and hitting the new limit. Thus, conservatives in Congress should only agree to raise the debt ceiling in exchange for real and immediate spending cuts (not future hypothetical ones) and other changes that justify burdening the country with additional debt.
Over the past five years government spending and deficits have soared while average American families have seen their incomes fall. Regular families have been forced to prioritize bills, cut spending, and do without in order to balance their budgets. Perhaps government needs a lesson in how budgeting works in the real world.
In fact, the liberals might be so concerned about settling this issue because they do not want Americans to realize that we can survive just fine with a lot less government spending. The sequester budget cuts turned out to be a non-event, not the disaster that was promised. The country did not even notice the missing spending that was cut. The debt ceiling deadline is a bigger deal than the sequester, but it is still manageable.
If the fiscal conservatives in Congress need to threaten to cut up the government’s credit card in order to get the big spenders to realize it is time to get serious about bringing the budget toward balance, then so be it. Republicans should hold firm and get meaningful spending cuts and perhaps other legislative concessions in exchange for letting the national debt continue to grow.
If Republicans cannot get a worthwhile agreement, put the credit card in the freezer and let everyone learn a lesson for a little while. If Congress does not raise the debt ceiling, the country will not default on its debt. Social security checks will still go out on time. There will be spending cuts, but plenty of spending will continue. The country can survive for a while on a balanced budget. Perhaps we will be better off in the long run if government gets a little taste of what so many families have been experiencing for years: staying within a budget.
Reaching the debt ceiling does not mean that the government will default on the outstanding government debt. In fact, the U.S. Constitution forbids defaulting on the debt (14th Amendment, Section 4), so the government is not allowed to default even if it wanted to.
In reality, if the debt ceiling is not raised in the next two weeks, the government will actually have to prioritize its expenses and keep its monthly, weekly, and daily spending under the revenue the government collects. In simple terms, the government would have to spend an amount less than or equal to what it earns. Just like ordinary Americans have to do in their everyday lives.
Once the reality of what hitting the debt ceiling means is understood, the important question is: can the government actually live with a balanced budget? How much money could it spend? Could enough spending be cut to live within a balanced budget? The answer is yes, the federal government could live with a balanced budget. Below I will show you precisely how.
The federal government estimates it will collect almost $3 trillion in revenue for the fiscal year that runs from October 1, 2013 until September 30, 2014. Below I demonstrate one possible way the federal government could institute some priorities and spend only the amount it receives in revenue. (All the numbers I use to construct the balanced budget below can be found here.)
To begin with, the interest on the national debt must be paid. I will budget $240 billion for that. The White House is guessing a little lower, but interest rates have been rising, so I will play it safe. Next, social security payments should run about $860 billion. Place that as the second priority and we already have spent $1.1 trillion of the $3 trillion we have.
Holding Medicare spending to about its fiscal year 2013 total and making some small cuts to Medicaid and other health spending would keep health care spending by the government to $860 billion. This does not include additional spending for the Affordable Care Act, but we need to prioritize and I am making it a lower priority than the health spending we have already been incurring. Also, there is no need for extra spending for the Affordable Care Act before January 1 since the coverage does not start until then. So as long as the debt ceiling is raised before then, there is no problem.
Veteran’s benefits will cost another $140 billion if we leave it unchanged. Department of Justice programs and general government functions add another $83 billion if their spending levels are held roughly constant. We can save some money by cutting science funding to $10 billion and international affairs spending to $13 billion which is enough to operate the State Department and embassies, but not pay foreign aid. This takes total spending to $2.2 trillion.
Cutting spending on conservation programs in half and paying only for agricultural research programs (no more farm subsidies) would cost $25 billion. Some moderate cuts to transportation spending bring it to $90 billion. Slicing education spending in half would reduce it to about $40 billion. The total for annual spending is now $2.36 trillion.
Retirement programs for federal employees add $137 billion to our spending. Cutting welfare programs back to basically food security programs (food stamps, WIC, the school lunch program) and housing assistance programs will leave federal welfare spending at $150 billion. Total spending has risen to $2.65 trillion.
That leaves only about $300 billion for defense spending. However, employee contributions to the retirement plan and some miscellaneous offsets that the government does not count as part of the $3 trillion in revenue expected next fiscal year bring in $90 billion per year. That means we can spend about $400 billion on defense and still have a balanced budget. This would reduce military spending back to 2003 levels, before we were fighting wars in the Middle East. Not a small cut, but probably feasible.
Most people will probably complain about one or more of the cuts proposed here. That is to be expected. If you didn’t notice, NASA and the Departments of Commerce and Energy were completely eliminated. Deep cuts were made to some other departments (Education, EPA, Agriculture, and HUD). Welfare spending was reduced. However, the point was not to propose a budget that people loved, but to show that a balanced budget was not completely beyond reason.
After all, the above spending paid all interest on the debt, left social security, veterans benefits, justice and law enforcement agencies, federal employee pensions, food stamps, and general government functions untouched, continued Medicare and Medicaid with some small cuts, and still spent non-trivial sums of money on education, transportation, and defense programs.
In the long run, if people want to restore some of the spending that I hypothetically cut above, we need to reform entitlements because that is where about three-quarters of the spending goes; principally to social security, Medicare, and Medicaid. The point above, however, was not to build a perfect budget or one that is sustainable in the long run, but just to show we could get by for a period of time without raising the debt ceiling.
I think we can all agree that our national politicians are not financially responsible. Giving them a credit card with a higher limit is sure to end with them using that extra credit and hitting the new limit. Thus, conservatives in Congress should only agree to raise the debt ceiling in exchange for real and immediate spending cuts (not future hypothetical ones) and other changes that justify burdening the country with additional debt.
Over the past five years government spending and deficits have soared while average American families have seen their incomes fall. Regular families have been forced to prioritize bills, cut spending, and do without in order to balance their budgets. Perhaps government needs a lesson in how budgeting works in the real world.
In fact, the liberals might be so concerned about settling this issue because they do not want Americans to realize that we can survive just fine with a lot less government spending. The sequester budget cuts turned out to be a non-event, not the disaster that was promised. The country did not even notice the missing spending that was cut. The debt ceiling deadline is a bigger deal than the sequester, but it is still manageable.
If the fiscal conservatives in Congress need to threaten to cut up the government’s credit card in order to get the big spenders to realize it is time to get serious about bringing the budget toward balance, then so be it. Republicans should hold firm and get meaningful spending cuts and perhaps other legislative concessions in exchange for letting the national debt continue to grow.
If Republicans cannot get a worthwhile agreement, put the credit card in the freezer and let everyone learn a lesson for a little while. If Congress does not raise the debt ceiling, the country will not default on its debt. Social security checks will still go out on time. There will be spending cuts, but plenty of spending will continue. The country can survive for a while on a balanced budget. Perhaps we will be better off in the long run if government gets a little taste of what so many families have been experiencing for years: staying within a budget.
